Is it too early to get ready for Obamacare's Cadillac tax?

Some employers want workers to start paying more next year to avoid surcharge.

October 14, 2013|By Matt Assad, Of The Morning Call

With Obamacare on the horizon, employers and government leaders across the nation are being encouraged to trade in their Cadillacs for Chevys.

That was the theory behind Northampton County's proposal last week to downgrade the health care coverage for county employees to avoid the so-called "Cadillac tax" that officials fear could cost taxpayers millions of dollars per year.

With the tax not scheduled to take effect until 2018, Northampton County is among the first to jump to prepare for it.

But experts say every school district, government body and business is, or soon will be, assessing the health care insurance they provide to employees to determine whether they'd be hit with a 40 percent tax for providing benefits that are too pricey.

"I can't believe you can be penalized for treating your employees right," Northampton County Executive John Stoffa said. "That doesn't make a lot of sense to me."

The Cadillac tax is actually a key part of the Affordable Care Act designed to control the rise in health care costs. Under the law, beginning in 2018 health insurance plans that cost more than $10,200 for individuals or $27,500 for families will be subject to a 40 percent tax on the amount over the thresholds. So, if an employer offers workers a plan that exceeds those thresholds by $1,000, a $400 excise tax is assessed for every worker in the plan.

For fully insured plans the insurance company is actually responsible to pay the tax, though it's assumed the companies will pass the costs on to consumers. In the case of self-insured plans, like the ones carried by both Lehigh and Northampton counties, the employer is on the hook for the tax.

Obamacare proponents argue that the high-cost plans are bloated over-insurance that shield employees from the true cost and encourage unnecessary tests and visits to the hospital by workers who have no financial stake in their own care.

Opponents, labor unions in particular, argue that workers who accepted less pay for better health care will be unfairly targeted to absorb the impact of the tax.

That's the debate that came to a head in Northampton County last week, where county officials propose raising the maximum out-of-out pocket health care costs for 1,600 full-time employees from $250 per year for singles and $500 for families, to $2,500 and $5,000 respectively.

And the county is not alone. Thousands of employees with generous health care plans have begun to get letters informing them that their plans may have to be diluted to avoid the tax.

Parkland School District's calculations show that the district could be paying a $150,000 tax in 2018 if it doesn't do something to either increase employees' contributions or change the design of the plan, district business administrator John A. Vignone said.

Joseph Lennert, CEO of Caruso Benefits Group, Bethlehem, said the excise tax has many of his company's 1,400 clients evaluating how the tax will affect them. He's telling most to take a wait-and-see approach. With the tax not hitting until 2018 and big political fights still looming about Obamacare, it's possible that the thresholds will be altered or that new, higher, thresholds will be added for health plans that have a lot of older members.

"A lot of employers are saying it's still four years off, let's monitor this and see how things change," Lennert said. "There are so many variables that will affect this, and quite frankly, for most health plans, things would have to go horribly wrong for the Cadillac tax to kick in."

That's what Lehigh County has decided to do, Director of Administration Tom Muller said.

"We're not going to shove something down our employees' throats in 2014 for something that doesn't come until 2018," Muller said. "Besides, we expect our costs to come well under the Cadillac threshold."

So, does that mean Northampton County is jumping the gun, or worse, using the threat of the tax to get its employees to accept less generous benefits?

"Absolutely not," said Pat Siemiontkowski, Northampton County director of human resources. "We're being proactive about this. It would be irresponsible for us to wait until 2018 and then stick our employees with an enormous increase all at once."

Siemiontkowski said if the county does nothing, its Cadillac tax hit could be $1 million in 2018 and a budget-busting $28 million by 2028.

The difference in approaches of two of the Lehigh Valley's largest employers can be explained by two things: Lehigh County employees already have the cost-sharing measures that Northampton County officials are now trying to make employees accept. And the two counties are basing their assessment of the Cadillac tax on very different projections of the next four years.